RadioShack Corp
RadioShack, Amazon Burn Short Sellers With S&P 500's Top Gains
By Michael Patterson
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A RadioShack store in New York
June 27 (Bloomberg) -- RadioShack Corp. and Amazon.com Inc. have defied short sellers and Wall Street analysts this year by posting the top gains in the Standard & Poor's 500 Index.
Shares of RadioShack, the third-largest U.S. electronics chain, and Amazon, the world's biggest online retailer, were among the 10 most-shorted in the S&P 500 as of June 15, according to data from the New York Stock Exchange and the Nasdaq Stock Market. Short sellers try to profit from stock declines by selling borrowed shares and buying them back at a lower price.
Those two stocks were also among the lowest-rated by analysts, who predicted at the start of the year that they would fall, based on estimates compiled by Bloomberg. RadioShack has almost doubled since December on buyout speculation and earnings that beat analysts' projections. Amazon jumped 71 percent as the company increased its 2007 profit forecast and introduced a new music download service.
``It's got to be brutal for shorts because everything's been going up,'' said Doug Peta, who helps oversee about $20 billion as a market strategist at J&W Seligman & Co. in New York. ``The short guys are the ones that look really unhappy at the bar after work.''
Takeovers and better-than-expected earnings have helped push the S&P 500 to a record this year. At the same time, short interest on the NYSE climbed to the highest in more than 75 years this month.
Traders borrowed and sold about 23 percent of RadioShack's float, or shares available for trading, as of mid-June. On that basis, it was the third most-shorted stock in the S&P 500. Amazon's short interest amounted to 15.2 percent of its float, making it the 10th most-shorted.
Most Shorted
Big Lots Inc., a seller of discontinued goods, was the S&P 500's most-shorted stock this month with 29 percent of its float sold to profit from falling prices.
The Nasdaq reported mid-June short-interest figures after the close of trading yesterday. The NYSE and American Stock Exchange released this month's short-sale data on June 21.
Short interest rose to 3.3 percent of shares listed on the NYSE this month. That's the highest since at least 1931, according to Bespoke Investment Group LLC, a research firm in Mamaroneck, New York.
Joseph Parnes, who helps oversee about $82 million including short positions as president of Baltimore-based Technomart Investment Advisors, said traders often lose money by shorting stocks too soon.
``We like to see the stock to fall off from the highs and then wait for the rebound to short,'' said Parnes. ``We are looking at possibly shorting RadioShack, but the time is not right yet.''
More Holds, Fewer Buys
The amount of shorting on the NYSE increased as analysts' buy recommendations slipped below holds as a percentage of total U.S. stock picks for the first time in at least 10 years in February. Buy calls now trail holds 45.3 percent to 47.8 percent, according to data Bloomberg began tracking in 1997.
The S&P 500 on May 30 surpassed its previous record of 1527.46 set on March 24, 2000. The index has climbed 5.3 percent this year and closed at 1492.89 yesterday.
Analysts at the beginning of this year expected RadioShack shares to drop 5 percent, based on the average of 21 six- to 18- month share-price estimates compiled by Bloomberg.
The stock jumped the most in seven months on Feb. 27 after the 86-year-old retailer posted a 65 percent gain in fourth- quarter profit and forecast 2007 earnings that topped analysts' estimates. RadioShack Chief Executive Officer Julian Day, hired last July, has closed more than 500 stores and helped trim the company's workforce by 7,000 to fend off competition from Best Buy Co., Circuit City Stores Inc. and Wal-Mart Stores Inc.
Buyout Speculation
RadioShack on April 30 reported a fivefold jump in first- quarter profit that beat analysts' estimates and extended the stock's 2007 rally. The shares have also benefited from investor speculation that RadioShack will be acquired, according to analysts at Credit Suisse.
As of yesterday, 19 analysts tracked by Bloomberg expected RadioShack to drop 20 percent on average in the next six to 18 months. None had a ``buy'' rating on the shares, which gained 28 cents to $32.85.
RadioShack spokesman Charles Hodges didn't return a phone message seeking comment.
Amazon was also among the S&P 500's lowest-rated stocks at the beginning of 2007, according to 23 analyst estimates compiled by Bloomberg.
Beating Estimates
Citigroup Investment Research on Jan. 2 told clients to sell the shares because they were too costly relative to the company's prospects for earnings growth. Analysts in January on average projected that Amazon, now the most expensive retail stock in the S&P 500 based on expected earnings for the next four quarters, would decline 8.6 percent.
The company surprised analysts and investors on April 24 after it said profit doubled on increased sales of electronics and clothes and a lower tax rate. Amazon boosted its 2007 operating income forecast to as much as $593 million from as much as $505 million.
Analysts surveyed by Bloomberg had estimated operating profit of $508 million on sales of $13.4 billion. The shares jumped 40 percent in two days following the earnings report.
Amazon's forecast prompted at least four brokerages, including Citigroup, to remove their ``sell'' ratings on the shares. As of yesterday, six analysts tracked by Bloomberg rated the stock a ``buy,'' 12 rated it a ``hold'' and seven rated it a ``sell.''
Still, analysts predict the shares will fall 21 percent on average over the next six to 18 months, according to estimates compiled by Bloomberg.
More Short Bets
Amazon has continued its rally in the past two months on speculation that the company's new music download service, announced on May 16 and starting this year, will boost earnings.
The stock closed at a seven-year high on June 5 after Banc of America Securities analyst Brian Pitz boosted his share-price forecast to $79 from $62 and said Amazon's foray into music downloads will increase profitability. The shares fell $1.18 to $67.48 yesterday.
Amazon spokesperson Drew Herdener didn't respond to a voice message seeking comment.
``People are seeing that Amazon is becoming a meaningful digital competitor,'' said David Garrity, director of research at Dinosaur Securities Inc. in New York. ``Having gotten to that point, investor perception of this name has changed entirely.''
The surge in RadioShack and Amazon's shares has prompted short sellers to boost their bets against the companies. Short interest in RadioShack jumped 55 percent from mid-December to mid-June, while Amazon's short interest climbed 8.1 percent during the same period.
To contact the reporter on this story: Michael Patterson in New York at mpatterson10@bloomberg.net . |
